American Water Works: High CapEx And Mounting Debts - Initiate With A Sell

Lighting Rock Research
2.03K Followers
(8min)

Summary

  • I am initiating a 'Sell' rating on American Water Works with a fair value of $39 per share due to mounting debt and negative free cash flow.
  • Despite stable revenue and attractive dividend payouts, heavy CapEx spending and high leverage (5.8x) raise significant financial concerns.
  • Growth is driven by acquisitions and military contracts, but persistent infrastructure needs keep free cash flow negative for the foreseeable future.
  • AWK's upside risks include lower interest rates, further military contract wins, and successful acquisitions, but the current risk/reward is unfavorable.

water treatment plant, wastewater bacterial, aeration, sedimentation purification, aerial view

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American Water Works (NYSE:AWK) operates water utilities in 14 states in the United States, serving 3.5 million active customers. Due to aging infrastructure, American Water Works has to spend heavily on CapEx to sustain their high-single-digit EPS

This article was written by

2.03K Followers
I am a growth-oriented investor, conducting fundamental research. Long-term focus, independent thinking. I prefer companies with deep moats and high recurring sales growth.

Analyst’s Disclosure:I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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